Chemung Financial (CHMG) - 2025 Q2 - Quarterly Report

FORM 10-Q Filing Information Overview of the company's quarterly report filing details and status Registrant Information Identifies Chemung Financial Corporation as the Q2 2025 Form 10-Q registrant, detailing identification and stock listing - Registrant: CHEMUNG FINANCIAL CORPORATION[2] - Filing Type: Quarterly Report (Form 10-Q) for the period ended June 30, 2025[2] Registrant Details | Detail | Value | | :--- | :--- | | State of Incorporation | New York | | I.R.S. Employer Identification No. | 16-1237038 | | Trading Symbol | CHMG | | Exchange | The Nasdaq Stock Market LLC | Filing Status and Shares Outstanding Details SEC filing compliance, accelerated filer status, and common stock shares outstanding as of August 1, 2025 - The registrant is an 'Accelerated filer' and a 'Smaller reporting company'[4] - As of August 1, 2025, 4,790,939 shares of Common Stock, $0.01 par value, were outstanding[4] Index Provides a navigational guide to the report's contents Glossary of Abbreviations and Terms Defines key abbreviations and financial terms used throughout the report for clarity Abbreviations Lists and defines common abbreviations used in financial statements and management's discussion - The glossary defines common abbreviations used in the financial statements and MD&A[7] Common Abbreviations | Abbreviation | Definition | | :--- | :--- | | ACL | Allowance for credit losses | | AFS | Available for sale securities | | CECL | Current expected credit loss | | EPS | Earnings per share | | GAAP | U.S. Generally Accepted Accounting Principles | | WMG | Wealth Management Group | Terms Defines key financial and operational terms, including Allowance for Credit Losses and Risk-Weighted Assets - Key terms are defined to clarify financial and operational concepts within the report[7] - Allowance for credit losses: Contra asset account estimating the lifetime amount the Corporation anticipates will be unrecoverable from assets with credit risk in conformity with CECL requirements[9] - Risk-Weighted Assets (RWA): Used to calculate regulatory capital ratios, consisting of on and off-balance sheet exposures weighted by factors representing their risk and potential for default[10] PART I. FINANCIAL INFORMATION Presents unaudited consolidated financial statements and management's discussion for the interim period Item 1: Financial Statements – Unaudited Presents unaudited consolidated financial statements and detailed notes for the interim period ended June 30, 2025 Consolidated Balance Sheets Snapshot of the Corporation's financial position, detailing assets, liabilities, and equity as of June 30, 2025 Consolidated Balance Sheet Highlights (in thousands) | Item | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total assets | $2,852,488 | $2,776,147 | $76,341 | 2.7% | | Total liabilities | $2,617,522 | $2,560,838 | $56,684 | 2.2% | | Total shareholders' equity | $234,966 | $215,309 | $19,657 | 9.1% | | Cash and cash equivalents | $320,051 | $47,035 | $273,016 | 580.5% | | Securities available for sale | $287,335 | $531,442 | $(244,107) | (45.9)% | | Loans, net | $2,109,749 | $2,050,031 | $59,718 | 2.9% | | Total deposits | $2,468,962 | $2,396,883 | $72,079 | 3.0% | | Subordinated debt, net | $44,146 | $0 | $44,146 | N/A | - Total assets increased by $76.3 million (2.7%) from December 31, 2024, to June 30, 2025, driven by a significant increase in cash and cash equivalents and growth in loans, partially offset by a decrease in available-for-sale securities[12] - Shareholders' equity saw a notable increase of $19.7 million (9.1%), primarily due to a decrease in accumulated other comprehensive loss[12] Consolidated Statements of Income (Loss) Details the Corporation's revenues, expenses, and net income (loss) for the three and six months ended June 30, 2025 Consolidated Statements of Income (Loss) Highlights (in thousands, except per share data) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total interest and dividend income | $33,034 | $31,386 | $64,732 | $62,605 | | Total interest expense | $12,226 | $13,625 | $24,107 | $26,755 | | Net interest income | $20,808 | $17,761 | $40,625 | $35,850 | | Provision (credit) for credit losses | $1,145 | $879 | $2,237 | $(1,161) | | Total non-interest income (loss) | $(10,705) | $5,598 | $(4,816) | $11,255 | | Total non-interest expense | $17,769 | $16,219 | $34,696 | $32,917 | | Net income (loss) | $(6,452) | $4,987 | $(429) | $12,037 | | Basic and diluted earnings (loss) per share | $(1.35) | $1.05 | $(0.09) | $2.53 | - The Corporation reported a net loss of $6.5 million for Q2 2025, a significant decline from a net income of $5.0 million in Q2 2024, primarily due to a $17.5 million net loss on security transactions[14] - Net interest income increased by $3.0 million (17.2%) for Q2 2025 compared to Q2 2024, driven by higher interest income from loans and deposits, and lower interest expense on deposits[14] Consolidated Statements of Comprehensive Income Presents total comprehensive income, including net income and other comprehensive income, for the interim periods Consolidated Statements of Comprehensive Income Highlights (in thousands) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $(6,452) | $4,987 | $(429) | $12,037 | | Net unrealized gains (losses) on securities available for sale | $19,102 | $218 | $30,132 | $(5,295) | | Total other comprehensive income (loss) | $14,214 | $167 | $22,360 | $(3,898) | | Comprehensive income | $7,762 | $5,154 | $21,931 | $8,139 | - Comprehensive income for Q2 2025 was $7.8 million, an increase from $5.2 million in Q2 2024, primarily due to significant net unrealized gains on available-for-sale securities, which offset the net loss[16] - For the six months ended June 30, 2025, comprehensive income was $21.9 million, a substantial increase from $8.1 million in the prior year, driven by large net unrealized gains on available-for-sale securities[16] Consolidated Statements of Shareholders' Equity Details changes in shareholders' equity, including net income, dividends, and other comprehensive income for interim periods Shareholders' Equity Changes (in thousands) | Item | June 30, 2025 | March 31, 2025 | Change ($) | | :--- | :--- | :--- | | Total Shareholders' Equity | $234,966 | $228,306 | $6,660 | | Retained Earnings | $244,211 | $252,195 | $(7,984) | | Accumulated Other Comprehensive Loss | $(42,705) | $(56,919) | $14,214 | Key Activities (Three Months Ended June 30, 2025) * Net loss: $(6,452) thousand * Other comprehensive income: $14,214 thousand * Cash dividends declared: $(1,532) thousand ($0.32 per share) * Repurchase of common stock: $(5) thousand (97 shares) - Total shareholders' equity increased by $6.7 million from March 31, 2025, to June 30, 2025, primarily due to a significant reduction in accumulated other comprehensive loss, despite a net loss for the quarter[19] - For the six months ended June 30, 2025, total shareholders' equity increased by $19.7 million from January 1, 2025, largely driven by other comprehensive income of $22.4 million[22] Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities for the interim periods Consolidated Statements of Cash Flows Highlights (in thousands) | Activity Type | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $16,926 | $14,422 | | Net cash provided by (used in) investing activities | $197,068 | $(13,634) | | Net cash provided by financing activities | $59,022 | $32,582 | | Net increase in cash and cash equivalents | $273,016 | $33,370 | | Cash and cash equivalents, end of period | $320,051 | $70,217 | - Net cash provided by investing activities significantly increased to $197.1 million for the six months ended June 30, 2025, compared to a net use of $13.6 million in the prior year, primarily due to proceeds from sales of available-for-sale securities[25] - Cash and cash equivalents at the end of the period surged to $320.1 million, up from $70.2 million in the prior year, reflecting strong cash generation from investing and financing activities[25] NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Outlines primary business activities and accounting principles applied in preparing financial statements - The Corporation provides banking, financing, fiduciary, and other financial services through its subsidiaries, the Bank and CFS[31] - Financial statements are prepared in conformity with GAAP for interim financial information and SEC reporting requirements[32] - ASU 2023-07 (Segment Reporting) was adopted for the annual period ended December 31, 2024, and interim periods beginning March 31, 2025, enhancing segment expense and CODM disclosures[35] - ASU 2023-09 (Income Taxes) and ASU 2024-03 (Expense Disaggregation Disclosures) are pending adoption, expected to impact future income tax and expense disclosures[36][37] NOTE 2 EARNINGS PER COMMON SHARE Explains basic earnings per common share calculation and notes the absence of dilutive securities - Basic earnings per share is calculated using the two-class method, considering unvested share-based payment awards as participating securities[38] Basic Earnings (Loss) Per Common Share (in thousands, except per share data) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) available to common shareholders | $(6,356) | $4,922 | $(423) | $11,879 | | Weighted average number of shares outstanding used in basic EPS calculation | 4,736,389 | 4,707,469 | 4,733,645 | 4,704,386 | | Basic earnings (loss) per common share | $(1.35) | $1.05 | $(0.09) | $2.53 | - There were no dilutive securities issuable or outstanding for the periods presented[38] NOTE 3 SECURITIES Details composition and fair value of the securities portfolio, including AFS securities and unrealized gains/losses Securities Available for Sale (AFS) - Estimated Fair Value (in thousands) | Security Type | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Mortgage-backed securities, residential | $254,552 | $365,934 | $(111,382) | (30.4)% | | Obligations of states and political subdivisions | $10,977 | $35,505 | $(24,528) | (69.1)% | | Corporate bonds and notes | $21,806 | $22,016 | $(210) | (1.0)% | | U.S. Treasury notes and bonds | $0 | $56,906 | $(56,906) | (100.0)% | | SBA loan pools | $0 | $51,081 | $(51,081) | (100.0)% | | Total AFS | $287,335 | $531,442 | $(244,107) | (45.9)% | - During Q2 2025, the Corporation sold $244.8 million in AFS securities, realizing a pre-tax loss of $17.5 million, including the entire U.S. Treasury and SBA loan pool portfolios[41] AFS Securities with Unrealized Losses (June 30, 2025, in thousands) | Security Type | Fair Value | Unrealized Losses | | :--- | :--- | :--- | | Mortgage-backed securities, residential | $249,558 | $52,113 | | Obligations of states and political subdivisions | $10,977 | $667 | | Corporate bonds and notes | $19,807 | $2,944 | | Total | $280,342 | $55,724 | - The majority of unrealized losses in AFS securities (93.5%) are in mortgage-backed securities, attributed to interest rate changes, not credit quality, with no allowance for credit losses recorded[46][47] NOTE 4 LOANS AND ALLOWANCE FOR CREDIT LOSSES Breakdown of loan portfolio, changes in allowance for credit losses, and trends in nonaccrual and past due loans Loan Portfolio Composition (in thousands) | Loan Type | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Commercial and industrial | $294,474 | $299,521 | $(5,047) | (1.7)% | | Commercial mortgages (Construction, Owner/Non-owner occupied) | $1,297,525 | $1,217,004 | $80,521 | 6.6% | | Residential mortgages | $278,221 | $274,979 | $3,242 | 1.2% | | Consumer loans (Home equity, Indirect, Direct) | $262,194 | $279,915 | $(17,721) | (6.3)% | | Total loans, net of deferred loan fees and costs | $2,132,414 | $2,071,419 | $60,995 | 2.9% | | Allowance for credit losses | $(22,665) | $(21,388) | $(1,277) | 6.0% | | Loans, net | $2,109,749 | $2,050,031 | $59,718 | 2.9% | - Total loans increased by $61.0 million (2.9%) from December 31, 2024, to June 30, 2025, primarily driven by growth in commercial mortgages[49] Allowance for Credit Losses (ACL) Activity (in thousands) | Item | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :--- | :--- | :--- | | Beginning balance | $22,522 | $21,388 | | Net recoveries (charge-offs) | $(992) | $(1,254) | | Provision (credit) | $1,135 | $2,531 | | Ending balance | $22,665 | $22,665 | - The provision for credit losses increased to $1.1 million for Q2 2025 (from $0.9 million in Q2 2024) and to $2.2 million for the six months ended June 30, 2025 (from a credit of $1.2 million in H1 2024), reflecting stronger loan growth and changes in economic projections[53][54] Nonaccrual Loans and Past Due Status (in thousands) | Loan Type | Nonaccrual Loans (June 30, 2025) | Nonaccrual Loans (Dec 31, 2024) | Total Past Due (June 30, 2025) | Total Past Due (Dec 31, 2024) | | :--- | :--- | :--- | :--- | :--- | | Commercial and industrial | $879 | $1,534 | $213 | $1,043 | | Commercial mortgages | $3,767 | $4,959 | $2,758 | $4,290 | | Residential mortgages | $1,837 | $1,372 | $2,485 | $2,887 | | Consumer loans | $1,754 | $1,089 | $3,413 | $3,671 | | Total | $8,237 | $8,954 | $8,869 | $11,891 | - Nonaccrual loans decreased to $8.2 million as of June 30, 2025, from $9.0 million at December 31, 2024, primarily due to payoffs and charge-offs of commercial loans[66] NOTE 5 FAIR VALUE Explains methodologies and categorization of fair value measurements for financial assets and liabilities - Fair value measurements are categorized into Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (unobservable inputs)[82][83] - Available for sale securities are primarily valued using Level 2 inputs (matrix pricing), while equity investments use Level 1 (quoted market prices)[84][85] - Collateral-dependent loans and Other Real Estate Owned (OREO) are typically valued using Level 3 inputs, based on real estate appraisals with significant adjustments[86][87] - During Q2 2025, the Corporation transferred $16.0 million of corporate subordinated debt issuances from Level 3 to Level 2 due to improved observable market data[94] Fair Value Measurement of Financial Assets (June 30, 2025, in thousands) | Financial Asset | Fair Value | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Total available for sale securities | $287,335 | $0 | $281,455 | $5,880 | | Equity investments, at fair value | $2,910 | $2,910 | $0 | $0 | | Derivative assets | $18,727 | $0 | $18,727 | $0 | | Collateral-dependent loans (non-recurring) | $2,021 | $0 | $0 | $2,021 | | Other real estate owned (non-recurring) | $56 | $0 | $0 | $56 | NOTE 6 LEASES Details operating and finance lease agreements, including terms, discount rates, and future payment obligations - The Corporation leases certain branch properties under long-term operating lease agreements, expiring through 2033, with a weighted average remaining lease term of 6.40 years and a discount rate of 3.53%[101] Operating Lease Liabilities - Undiscounted Cash Flows (in thousands) | Year | Amount | | :--- | :--- | | 2025 | $476 | | 2026 | $965 | | 2027 | $977 | | 2028 | $845 | | 2029 | $827 | | 2030 and thereafter | $1,862 | | Total minimum lease payments | $5,952 | | Less: amount representing interest | $(633) | | Present value of net minimum lease payments | $5,319 | - Finance leases for certain buildings have a weighted average remaining lease term of 11.04 years with a discount rate of 4.04%[103] - Related party transactions include a branch lease from a Board member, with rent and CAM expenses totaling $28 thousand for Q2 2025 and $55 thousand for H1 2025[105] NOTE 7 GOODWILL AND INTANGIBLE ASSETS Reports stable goodwill and intangible assets, noting no amortization expense or impairment charges for the periods - Goodwill remained stable at $21.8 million for both June 30, 2025, and December 31, 2024[106] - No amortization expense was incurred for goodwill and intangible assets during the three and six months ended June 30, 2025 and 2024[106] - Goodwill impairment testing is performed annually as of December 31, with no impairment charges incurred as of the last test on December 31, 2024[107] NOTE 8 COMMITMENTS AND CONTINGENCIES Outlines off-balance sheet financial instruments and assesses potential impact of pending legal proceedings - The Corporation is party to off-balance sheet financial instruments including commitments under standby letters of credit, unused lines of credit, and commitments to fund new loans[108] Off-Balance Sheet Commitments (in thousands) | Commitment Type | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Commitments to make loans | $65,753 | $79,526 | | Unused lines of credit | $390,286 | $360,356 | | Standby letters of credit | $18,526 | $19,180 | - An allowance for credit losses on unfunded commitments was $0.5 million as of June 30, 2025, and $0.8 million as of December 31, 2024[111] - The Corporation believes it is not a party to any pending legal, arbitration, or regulatory proceedings that could have a material adverse impact on its financial results or liquidity as of June 30, 2025[112] NOTE 9 BORROWED FUNDS Details composition of borrowed funds, including FHLBNY advances, subordinated notes, and associated collateral Borrowed Funds Outstanding (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | FHLBNY fixed rate term advances | $55,000 | $0 | | FHLBNY overnight advances | $0 | $109,110 | | Subordinated notes, net | $44,146 | $0 | | Total borrowed funds | $99,146 | $109,110 | - On June 10, 2025, the Corporation issued $45.0 million of 7.75% fixed-to-floating rate subordinated notes due June 15, 2035, with net proceeds of $44.1 million[114] - FHLBNY advances were collateralized by $248.0 million of residential mortgage and home equity loans as of June 30, 2025, with an unused borrowing capacity of $115.2 million[113] NOTE 10 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Explains components of accumulated other comprehensive income (loss), including unrealized gains/losses and benefit plan adjustments - Accumulated other comprehensive income (loss) represents net unrealized holding gains or losses on AFS securities and the funded status of defined benefit pension and other benefit plans, net of tax[115] Changes in Accumulated Other Comprehensive Income (Loss) (in thousands) | Component | Balance at April 1, 2025 | Net Current Period OCI (Loss) | Balance at June 30, 2025 | | :--- | :--- | :--- | :--- | | Unrealized Gains and Losses on Securities Available for Sale | $(55,199) | $14,208 | $(40,991) | | Defined Benefit and Other Benefit Plans | $(1,720) | $6 | $(1,714) | | Total | $(56,919) | $14,214 | $(42,705) | - A significant reclassification adjustment of $13.2 million (net of tax) from unrealized losses on AFS securities was recognized into net income for the three and six months ended June 30, 2025, due to security sales[117][118] NOTE 11 REVENUE FROM CONTRACTS WITH CUSTOMERS Details non-interest income streams from customer contracts, including WMG fees and service charges - All revenue from contracts with customers under ASC 606 is recognized within non-interest income[119] Non-Interest Income by Revenue Stream (in thousands) | Revenue Stream | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :--- | :--- | :--- | | WMG fee income | $2,993 | $5,860 | | Service charges on deposit accounts | $1,114 | $2,234 | | Interchange revenue from debit card transactions | $1,110 | $2,147 | | CFS fee and commission income | $270 | $493 | | Net (losses) on security transactions (not ASC 606) | $(17,498) | $(17,498) | | Other (includes non-ASC 606 items) | $1,606 | $1,960 | | Total non-interest income (loss) | $(10,705) | $(4,816) | - WMG fee income increased by 4.7% for Q2 2025 and 5.3% for H1 2025, driven by fee rate increases and positive financial market changes[210][216] - Service charges on deposit accounts increased by 15.6% for Q2 2025 and 16.8% for H1 2025, primarily due to fee rate increases implemented in H2 2024[209][215] NOTE 12 COMPONENTS OF QUARTERLY AND YEAR TO DATE NET PERIODIC BENEFIT COSTS Presents net periodic benefit costs for qualified pension, supplemental pension, and postretirement plans Net Periodic Benefit Costs (in thousands) | Plan Type | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :--- | :--- | :--- | | Qualified Pension Plan | $(133) | $(266) | | Supplemental Pension Plan | $14 | $28 | | Postretirement Plan, Medical and Life | $6 | $12 | | Total Net Periodic Benefit Costs | $(113) | $(226) | - The Qualified Pension Plan generated a net periodic benefit for the Corporation, while Supplemental Pension and Postretirement Plans incurred costs[133] NOTE 13 SEGMENT REPORTING Identifies operating segments, Core Banking and Wealth Management Group, and their respective financial performance - The Corporation operates through two primary business segments: Core Banking and Wealth Management Group (WMG)[134] - The Executive Management Team (EMT) acts as the Chief Operating Decision Maker (CODM), evaluating segment financial performance based on net income[135] Segment Net Income (Loss) (in thousands) | Segment | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :--- | :--- | :--- | | Core Banking | $(7,045) | $(1,664) | | WMG | $802 | $1,547 | | Holding Company and CFS | $(209) | $(312) | | Consolidated Totals | $(6,452) | $(429) | - Core Banking reported a net loss for both periods, while WMG consistently generated net income[138][139] NOTE 14 STOCK COMPENSATION Details stock-based compensation plans, including the 2025 Equity Incentive Plan, expenses, and unrecognized costs - Shareholders approved the 2025 Equity Incentive Plan on June 3, 2025, allowing for grants of stock-based awards to officers, employees, and directors, with a maximum of 160,000 shares[141][142] - Total stock compensation expense was $0.3 million for each of the three-month periods and $0.6 million for each of the six-month periods ended June 30, 2025 and 2024[143] Restricted Stock Activity (Shares) | Item | Nonvested at April 1, 2025 | Granted (Q2 2025) | Vested (Q2 2025) | Nonvested at June 30, 2025 | | :--- | :--- | :--- | :--- | :--- | | Shares | 71,436 | 1,284 | (273) | 72,447 | | Weighted-Average Grant Date Fair Value | $48.29 | $46.75 | $43.83 | $48.28 | | Item | Nonvested at January 1, 2025 | Granted (H1 2025) | Vested (H1 2025) | Nonvested at June 30, 2025 | | :--- | :--- | :--- | :--- | :--- | | Shares | 49,703 | 35,156 | (12,412) | 72,447 | | Weighted-Average Grant Date Fair Value | $46.67 | $50.45 | $47.98 | $48.28 | - As of June 30, 2025, $2.8 million of total unrecognized compensation cost remains, expected to be recognized over a weighted-average period of 3.29 years[144] Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of financial condition and results, covering strategic actions, critical estimates, and key performance drivers Introduction Overview of MD&A scope, Corporation's business, and factors influencing forward-looking statements - The MD&A provides a comparative discussion of the Corporation's financial performance for the three and six months ended June 30, 2025, and 2024[146] - The Corporation, through its Bank and CFS subsidiaries, offers a wide range of financial services, with the Bank's income primarily from loans, investment securities, and wealth management fees[148] - Forward-looking statements are subject to risks such as economic conditions, interest rates, credit risk, inflation, and regulatory changes[149] Summary of Strategic Actions Details key strategic initiatives, including subordinated debt issuance, capital contributions, and securities sales - The Corporation issued $45.0 million in 7.75% fixed-to-floating rate subordinated notes due June 2035, with net proceeds of $44.1 million, to strengthen regulatory capital and support loan growth[152] - The Bank received a $37.0 million capital contribution from the proceeds, enhancing its common equity tier 1 capital[152] Regulatory Capital Ratios (Bank) - June 30, 2025 vs. March 31, 2025 | Ratio | June 30, 2025 | March 31, 2025 | Change (bps) | | :--- | :--- | :--- | :--- | | Tier 1 capital to risk-weighted assets | 13.49% | 12.11% | 138 | | Total capital to risk-weighted assets | 14.58% | 13.19% | 139 | | CRE concentration ratio | 373.63% | 401.60% | (27.97)% | Regulatory Capital Ratios (Corporation) - June 30, 2025 vs. March 31, 2025 | Ratio | June 30, 2025 | March 31, 2025 | Change (bps) | | :--- | :--- | :--- | :--- | | Tier 1 capital to risk-weighted assets | 12.00% | 12.37% | (37) | | Total capital to risk-weighted assets | 15.16% | 13.45% | 171 | | CRE concentration ratio | 359.09% | 393.81% | (34.72)% | - The Corporation sold $244.8 million (book value) of available-for-sale securities, resulting in a $17.5 million pre-tax loss, to pay off $155.0 million in wholesale funding liabilities and fund future loan growth[154] - A previous branch property was sold in April 2025 for $1.3 million, recognizing a $0.6 million gain[156] - The capital loss from the REIT's security sales resulted in a $2.7 million deferred tax asset, which management expects to realize through future capital gains[157][158][159] Critical Accounting Estimates Discusses Allowance for Credit Losses (ACL) as a critical estimate, detailing its determination and sensitivity - The Allowance for Credit Losses (ACL) is a critical accounting estimate due to the inherent uncertainty in estimating lifetime credit losses and its material impact on financial results[162] - The ACL is determined through quantitative and qualitative analysis, considering past events, current conditions, and reasonable forecasts, with quarterly evaluations[162][163] Allowance for Credit Losses (in thousands) | Date | Total ACL | | :--- | :--- | | June 30, 2025 | $22,700 | | December 31, 2024 | $21,400 | - A significant portion of the ACL (76.1% at June 30, 2025) is allocated to the commercial portfolio, requiring high scrutiny[165] - Sensitivity analysis indicates that a 100 basis point increase in U.S. civilian unemployment and a 50 basis point decrease in U.S. GDP growth would increase the total calculated ACL by $0.8 million (3.6%) to $23.5 million[166] Consolidated Results of Operations Analyzes financial performance, including net income, net interest income, non-interest income/expense, and tax impacts Consolidated Results of Operations (in thousands, except per share data) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $(6,452) | $4,987 | $(429) | $12,037 | | Basic and diluted EPS | $(1.35) | $1.05 | $(0.09) | $2.53 | | Net interest income | $20,808 | $17,761 | $40,625 | $35,850 | | Non-interest income (loss) | $(10,705) | $5,598 | $(4,816) | $11,255 | | Non-interest expense | $17,769 | $16,219 | $34,696 | $32,917 | | Provision (credit) for credit losses | $1,145 | $879 | $2,237 | $(1,161) | | Income tax expense (benefit) | $(2,359) | $1,274 | $(695) | $3,312 | - The Corporation reported a net loss of $6.5 million for Q2 2025 and $0.4 million for H1 2025, primarily due to a $17.5 million net loss on securities transactions[177] - Adjusted for nonrecurring items (securities sale loss and branch property gain), net income for Q2 2025 was $6.3 million ($1.31 EPS) and for H1 2025 was $12.3 million ($2.57 EPS)[178] - Net interest income increased by $3.0 million (17.2%) for Q2 2025 and $4.8 million (13.3%) for H1 2025, driven by higher loan and deposit interest income and lower deposit interest expense[179][187] - Fully taxable equivalent net interest margin increased to 3.05% for Q2 2025 (from 2.66% in Q2 2024) and to 3.00% for H1 2025 (from 2.69% in H1 2024)[186][193] - Non-interest expense increased by $1.6 million (9.6%) for Q2 2025 and $1.8 million (5.4%) for H1 2025, mainly due to higher compensation (salaries and wages) and data processing expenses[217][221] - Income tax expense was a benefit of $2.4 million for Q2 2025 and $0.7 million for H1 2025, primarily due to the $17.5 million net loss on securities sales[224][225] Financial Condition Reviews the balance sheet, highlighting changes in assets, liabilities, equity, and their key drivers Selected Financial Information (in thousands) | Item | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total assets | $2,852,488 | $2,776,147 | $76,341 | 2.7% | | Total deposits | $2,468,962 | $2,396,883 | $72,079 | 3.0% | | Loans, net of deferred loan fees | $2,132,414 | $2,071,419 | $60,995 | 2.9% | | Total investment securities, FHLB and FRB stock | $298,228 | $544,602 | $(246,374) | (45.2)% | | Total shareholders' equity | $234,966 | $215,309 | $19,657 | 9.1% | - Total assets increased by $76.3 million (2.7%), driven by a $273.0 million increase in cash and cash equivalents, largely from securities sales proceeds[226][227] - Investment securities decreased by $246.4 million (45.2%) due to strategic sales of available-for-sale securities[228] - Loans, net of deferred loan fees, increased by $61.0 million (2.9%), primarily from commercial mortgage growth, offset by decreases in indirect consumer and commercial and industrial loans[229][242] - The allowance for credit losses increased by $1.3 million (6.0%) to $22.7 million, influenced by annual model updates, loan growth, and changes in economic forecasts[230][263][264] - Deposits increased by $72.1 million (3.0%), mainly from money market and interest-bearing demand deposits, partially due to seasonal municipal inflows[232][269] - Subordinated debt increased by $44.1 million due to the issuance of new notes in June 2025[234] - Shareholders' equity increased by $19.7 million (9.1%), primarily from a decrease in accumulated other comprehensive loss[236] Liquidity Describes liquidity management strategies, including cash positions, available securities, borrowing capacity, and deposit composition - The Corporation manages liquidity to meet cash flow requirements through short-term investments, lending/investing activities, core-deposit growth, and non-core funding sources[279] - Cash and cash equivalents totaled $320.1 million as of June 30, 2025, largely from securities sales proceeds[281] - Available-for-sale securities of $287.3 million (with $74.2 million unpledged) serve as a liquidity source[281] - The Bank had $115.2 million in unused borrowing capacity at the FHLBNY as of June 30, 2025[282] - Uninsured deposits were $694.3 million (28.1% of total deposits) as of June 30, 2025, with $187.4 million collateralized[283] - Brokered deposits of $100.0 million as of June 30, 2025, matured and were paid in July 2025[284] Consolidated Cash Flows Analysis Analyzes sources and uses of cash from operating, investing, and financing activities for the six months ended June 30, 2025 Consolidated Summary of Cash Flows (in thousands) | Activity Type | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $16,926 | $14,422 | | Net cash provided (used) in investing activities | $197,068 | $(13,634) | | Net cash provided by financing activities | $59,022 | $32,582 | | Net increase in cash and cash equivalents | $273,016 | $33,370 | - Cash provided by investing activities significantly increased in H1 2025 due to proceeds from available-for-sale securities sales[288] - Cash provided by financing activities in H1 2025 was driven by FHLBNY advances, subordinated debt issuance, and a net increase in deposits[289] Capital Resources Discusses regulatory capital compliance, capital ratios, and available capital for dividends and share repurchases - The Bank is subject to regulatory capital requirements under Basel III rules and prompt corrective action regulations, maintaining capital ratios in excess of 'well-capitalized' thresholds[290][292][293] Bank Capital Ratios (June 30, 2025) | Capital Ratio | Actual Ratio | Minimum for Adequacy | Minimum for Well Capitalized | | :--- | :--- | :--- | :--- | | Total Capital (to RWA) | 14.58% | 8.00% | 10.00% | | Tier 1 Capital (to RWA) | 13.49% | 6.00% | 8.00% | | Common Equity Tier 1 Capital (to RWA) | 13.49% | 4.50% | 6.50% | | Tier 1 Capital (to Average Assets) | 10.07% | 4.00% | 5.00% | - The Corporation's Tier 2 capital includes $44.1 million of subordinated notes, with $37.0 million contributed to the Bank as common equity Tier 1 capital[294] - As of June 30, 2025, the Bank could declare approximately $37.4 million in dividends without prior regulatory approval[297] - The Corporation has remaining buyback authority for 200,816 shares under its stock repurchase program as of June 30, 2025[278] Explanation and Reconciliation of the Corporation's Use of Non-GAAP Measures Explains and reconciles non-GAAP financial measures for insights into operational performance and trends - The Corporation uses non-GAAP financial measures to provide investors with insights into underlying operational performance and trends, facilitating comparisons with other companies[300] - Fully taxable equivalent net interest income and net interest margin are non-GAAP measures used to adjust for tax-exempt income, allowing for better comparability[302] Net Interest Margin - Fully Taxable Equivalent (non-GAAP) | Period | Net Interest Margin (GAAP) | Fully Taxable Equivalent Adjustment | Net Interest Margin (non-GAAP) | | :--- | :--- | :--- | :--- | | Q2 2025 | 2.92% | 0.13% | 3.05% | | Q2 2024 | 2.58% | 0.08% | 2.66% | | H1 2025 | 2.95% | 0.05% | 3.00% | | H1 2024 | 2.64% | 0.05% | 2.69% | - The adjusted efficiency ratio (non-GAAP) excludes one-time occurrences and amortization of intangible assets to better assess productivity[304] Efficiency Ratio (non-GAAP) | Period | Efficiency Ratio (unadjusted) | Efficiency Ratio (adjusted) | | :--- | :--- | :--- | | Q2 2025 | 175.88% | 65.69% | | Q2 2024 | 69.43% | 69.19% | | H1 2025 | 96.89% | 65.67% | | H1 2024 | 69.88% | 69.64% | - Tangible equity, tangible assets, and tangible book value per share are non-GAAP measures that exclude goodwill and other intangible assets, providing insights into the Corporation's use of equity[306][308] Non-GAAP Net Income (Loss) (in thousands) | Period | Reported Net Income (Loss) (GAAP) | Net (Gains) Losses on Securities Transactions (net of tax) | Net (Gain) Loss on Sale of Branch Property (net of tax) | Non-GAAP Net Income | | :--- | :--- | :--- | :--- | :--- | | Q2 2025 | $(6,452) | $13,237 | $(463) | $6,322 | | H1 2025 | $(429) | $13,237 | $(463) | $12,345 | Item 3: Quantitative and Qualitative Disclosures About Market Risk Discloses market risk exposures, primarily interest rate and credit risk, and management's mitigation strategies Interest Rate Risk Discusses interest rate exposure and its potential impact on net interest income and equity value - Interest rate risk is the most significant market risk, impacting net interest income and equity value due to changes in interest rates[312][313] - The Asset-Liability Committee (ALCO) sets policy guidelines and monitors interest rate risk exposure[314] Impact of Interest Rate Changes on Net Interest Income (over 12 months) | Change in Interest Rates | Percentage Increase (Decrease) | | :--- | :--- | | 200 basis points decrease | (0.94)% | | 100 basis points decrease | 0.02% | | 100 basis points increase | 4.51% | | 200 basis points increase | 8.97% | Impact of Interest Rate Changes on Present Value of Corporation's Equity | Change in Interest Rates | Percentage Increase (Decrease) | | :--- | :--- | | 200 basis points decrease | 0.22% | | 100 basis points decrease | 1.05% | | 100 basis points increase | 2.49% | | 200 basis points increase | 4.89% | Credit Risk Describes credit risk management through policies, loan review, and portfolio diversification - Credit risk is managed through written policies, loan review, collection procedures, an adequate allowance for credit losses, and ongoing training[318] - Loan portfolio diversification is maintained across commercial loans, 1-4 family mortgages, and consumer loans[318] - The Board's Loan Committee and the Senior Loan Committee oversee loan policy and approvals, ensuring adherence to risk guidelines[319] Item 4: Controls and Procedures Management confirmed effective disclosure controls and procedures, with no material changes to internal control over financial reporting - The Corporation's disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025[321] - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[321] - Disclosure controls are designed to ensure timely and accurate reporting of information required under the Exchange Act[322] PART II. OTHER INFORMATION Disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1: Legal Proceedings Details a lawsuit against Pioneer Bank for a defaulted $4.2 million commercial credit facility, with no other material legal impacts - The Corporation filed a lawsuit against Pioneer Bank for breach of participation agreement, fraud, and negligent misrepresentation related to a $4.2 million defaulted commercial credit facility[324] - A recovery of $0.5 million was received in April 2020, with $3.7 million and accumulated expenses still being pursued[324] - No other pending legal, arbitration, or regulatory proceedings are expected to have a material adverse impact on financial results or liquidity as of June 30, 2025[325] Item 1A: Risk Factors Reports no material changes to previously disclosed risk factors, acknowledging potential for new or immaterial risks - No material changes to the risk factors from the 2024 Annual Report on Form 10-K were identified[326] - The Corporation acknowledges the potential for additional unknown or currently immaterial risks to adversely affect its business[326] Item 2: Unregistered Sales of Equity Securities and Use of Proceeds No common stock repurchases in Q2 2025, with 200,816 shares remaining under the repurchase program - No shares were repurchased under the stock repurchase program during the quarter ended June 30, 2025[327] - As of June 30, 2025, 200,816 shares remained available for repurchase under the program[327] - The stock repurchase program, approved on January 8, 2021, authorizes the repurchase of up to 250,000 shares of common stock[327] Item 3: Defaults Upon Senior Securities This section is not applicable to the Corporation for the current reporting period - This section is marked as 'Not applicable'[328] Item 4: Mine Safety Disclosures This section is not applicable to the Corporation for the current reporting period - This section is marked as 'Not applicable'[329] Item 5: Other Information No Rule 10b5-1 trading arrangements adopted or terminated by directors or officers during Q2 2025 - No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during Q2 2025[330] Item 6: Exhibits Lists all exhibits filed with the Form 10-Q, including organizational documents, officer certifications, and XBRL files - The exhibit list includes organizational documents, officer certifications, and XBRL taxonomy files[331] - Certifications from the Principal Executive Officer and Principal Financial Officer are filed herewith[331] SIGNATURES Contains required signatures of authorized officers, certifying accuracy and completeness of the Form 10-Q filing EXHIBIT INDEX Provides a comprehensive list of all exhibits accompanying the Form 10-Q, detailing descriptions and filing status